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Department of the Treasury Internal Revenue Service 8397 Employee Plan Deficiency Check sheet Attachment #7 Top-Heavy Plans Form (Rev. March 2006) For IRS Use 707 II.a. 710, 711 II.b.(i)(a) and (b)
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How to fill out top-heavy plans
How to fill out top-heavy plans:
01
Determine if your company's retirement plan qualifies as a top-heavy plan. A top-heavy plan is one where the total value of the accounts held by key employees exceeds 60% of the total value of all accounts in the plan.
02
Identify key employees in your plan. Key employees are typically defined as company owners, officers, and highly compensated employees. These individuals are often the ones who have the highest account balances.
03
Calculate the top-heavy minimum contribution. The top-heavy minimum contribution is the amount that must be contributed to the plan to ensure that non-key employees receive a minimum benefit. This is typically either 3% of compensation for each non-key employee or a lesser percentage that maintains the ratio between the key employees' account balances and the non-key employees' account balances.
04
Communicate the top-heavy status to all plan participants. Provide employees with a clear explanation of what it means for the plan to be top-heavy and how it may impact their retirement benefits.
05
Adjust contributions as necessary. If the plan is top-heavy, additional contributions may need to be made on behalf of non-key employees to meet the minimum requirements. Ensure that these contributions are made in a timely manner and in accordance with the plan's rules and regulations.
06
Monitor the plan on an ongoing basis. It's important to regularly review the plan's status to ensure compliance with top-heavy requirements. This may involve annual testing and adjustments to contribution levels as necessary.
Who needs top-heavy plans:
01
Companies with a significant number of key employees. Top-heavy plans are most commonly found in companies where a small group of individuals holds a majority of the plan's assets.
02
Companies that want to attract and retain key employees. Offering a top-heavy plan can be an attractive benefit for highly compensated employees and may help incentivize them to stay with the company.
03
Companies that want to meet certain legal requirements. Depending on the type of retirement plan being offered, there may be legal requirements for the plan to not be top-heavy. In such cases, it becomes necessary for the company to actively manage and address the top-heavy status of the plan.
Overall, understanding how to fill out top-heavy plans and identifying who needs them is crucial for companies to navigate the complexities of retirement planning and ensure compliance with applicable regulations.
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What is top-heavy plans?
Top-heavy plans are retirement plans where the total value of the accounts for key employees make up more than 60% of the total value of all accounts in the plan.
Who is required to file top-heavy plans?
Plan administrators of retirement plans are required to file top-heavy plans if the plan is deemed to be top-heavy.
How to fill out top-heavy plans?
Top-heavy plans must be filled out accurately with information about key employees, non-key employees, account balances, and contributions.
What is the purpose of top-heavy plans?
The purpose of top-heavy plans is to ensure that retirement plans do not excessively favor key employees over non-key employees.
What information must be reported on top-heavy plans?
Top-heavy plans must report information on key employees, non-key employees, account balances, contributions, and any corrective actions taken.
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